Part One of Three
In the first of three blogs, Gavin Allen (Managing Director LucaNet UK & Ireland), discusses the topic of business financial planning, what it means, it's relevance, and just where should you start?
So just what is business financial planning? What does it involve, who does it involve and where do you start?
It’s a common question that I get asked all the time within the finance community, and it’s often a misunderstood business process. Sure, we all know that a successful organisation will prepare annual budgets, and if possible forecasts, and for the very brave rolling forecasts! In addition, such financial information is also complimented by non-financial information used for both drivers and indicators of forecast performance.
However, I do not think it is that simple to merely categorise the process of planning, budgeting and forecasting into these areas. I believe it goes further than this, especially with the constant evolution and march of technology in the financial performance management domain.
What do I mean by this?
Well, let’s be absolutely clear, since the dawn of time, organisations of all sizes and across all business sectors have always wanted to look into their crystal ball, and look forward beyond the actual financial results, so nothing new here. However, I believe where organisations need to start, is by considering the levels of detail that are actually required for their business plans, and does that extra level of detail actually provide greater accuracy, especially when considering a strategic financial plan? For example, does planning by widget, by customer provide a quick route to a business financial cash flow plan, especially when it’s the CFO asking the question?
It is high time we look back to basics. Sure with the right technology we can now plan and model at inordinate levels of detail, and involve thousands of personnel in the process, but should we really be starting here? The Office of Finance operates on a day to day transactional basis, recording transactions pertaining to either income or expense, that then flow through to the financial statements depicting the welfare of that organisation (i.e. the balance sheet). Organisations invest countless hours in the development of their transactional recording systems – the general ledger – with a codified logic for recording of those transactions – the chart of accounts. In essence the fundamentals of accounting, being Debits and Credits.
Click Here, to read more about my views and thoughts on technology and it's impact on the Office of Finance, when I presented at Accountex in May 2016, sponsored by CIMA, and interviewed by Tom Herbert, Business Editor of Accountweb.com. I have also made the slide deck available as a slide share here.
Surely with such an investment in capturing the transactional levels of detail in the general ledger, against a coded and defined structure, this must be the place to start looking into the future? Yes, I hear you cry, but we need to plan and model our sales, by customer, by geography, by widget etc., but that should not be the place to start given we have such comprehensive information at our disposal with the actual records of information, albeit summarised into a chart of accounts?
Assuming of course that you have clean data to start with, then thats great. I have previously highlighted the importance of good quality data in my previous blog article Financial Performance Management and Data.
So here is my point. Why don’t we capitalise on the information we have already from the actual transactional records (the general ledger or general ledgers if you have more than one), and start the process of forward looking financial information from this basis? It seems to make perfect sense really, but I hear too often in today’s organisations that they must have forward looking financial information, with copious amounts of detail for everything, produced by an army of personnel. Only to then be compared back to an initial strategic plan initially put together based on – guess what – the current financial statements, and the chart of accounts from which they were based!
In the brief highlights video below, see LucaNet in action leveraging the actual reference data, to construct and delivery "out of the box" plans and forecasts with accounting rules and logic that hark back to the principles of Debits and Credits.
Look out for the next blog article, in which I will go on to discuss the real meaning of planning, and the differences between Financial and Operational Planning. In the meantime you might also be interested in a previous article highlighting the Top Financial Concerns of Financial Controllers.
To discuss your requirements further, or arrange a personalised one to one demonstration of the LucaNet platform, then please contact us and discover the unique, simply intelligent solution that is LucaNet.
"Any sufficiently advanced technology is indistinguishable from magic." Arthur C. Clarke